Лекция: A Pattern for Bottom-Fishing
Market-specific systems work best on a particular market because they capture some unusual feature of that market. It is difficult to speculate why certain markets show signature patterns. We should take extra care when developing such systems because the market mechanics driving such patterns could change abruptly.
A Pattern for Bottom-Fishing133
The S&P-500 futures contract can be used to illustrate a pattern-based approach. For instance, we consider a continuous contract from April 21, 1982, through July 10, 1995, and test the standard simple moving average crossover system with 10-day and 11-day simple moving averages. We use a relatively loose $2,000 initial stop, which will absorb random price fluctuations, and allow $100 for slippage and commissions.
The 10- and 11-day dual crossover system lost $181,005 on paper, with 530 trades. Only 34 percent or 178 trades, were profitable, with a maximum intraday drawdown of $189,370. One interesting feature was that virtually all the loss ($185,545) was on short trades. This makes sense if we recognize that the market has been generally moving up since 1982. However, it is striking that this simple trend-following system fared poorly in spite of the prolonged uptrend. So the S&P-500 futures market is not a trend-follower's delight.
Because all of the losses were on the short side in the previous test, it makes sense to try the simple moving crossover system in the an-titrend mode. The antitrend rules are as follows:
1. Buy if the 10-day SMA crosses below the 11-day SMA on the close.
2. Sell if the 10-day SMA crosses above the 11-day SMA on the close.
Using the same test period, initial stop, and allowance for slippage and commissions as the previous test, the turnaround in profits with the antitrend rules was remarkable. This antitrend 10- and 11-dayJystem netted $55,920 for a swing of $240,925 on 531 trades. Fully 48 percent, or 254 trades, were profitable, with a maximum intraday drawdown of $32,735.
The results of the antitrend approach are not spectacular. However, they do highlight the unusual nature of the S&P-500 market. They suggest that you could find market-specific systems that would test poorly on other markets. For example, the 10/11 antitrend strategy lost $56,775 when tested on the Swiss franc continuous contract over the same period, but the 10/11 trend-following strategy lost just $13,088 over the same period.
The following is a glaring example of how «hindsight» influences system design. There were many «V» bottoms on the daily bar-charts of the S&P-500 market, so a bottom-fishing strategy that tries to pick bottoms was attempted. Theoretically, it should test well since this is an
134 Developing New Trading Systems
andtrend approach. The rules for the S&P-500 «bottom fishing» pattern are as follows:
1. A 20-day low has formed within the last 5 days.
2. Today's high-low range > X; X = 4 for conservative trades; X = 1 for aggressive trades (each point is not one tick, but one full S&P index point = $500)
3. Today's closing-opening range > Y; Y = 3 for conservative trades; Y = 0 for aggressive trades.
4. If rules 1,2, and 3 are true, then buy tomorrow on the close.
5. Exit on the close of the twentieth day in the trade.
6. Initial money management stop = $2,000 per contract.
Note that we can fully automate the bottom-fishing pattern. We have no difficulty getting entries, because if we get a signal today, we can buy on tomorrow's close. So it is easy to implement using a mechanical system. For example, the analysis can be done after market hours, and the order entered before trading begins.
This system has a conservative entry combination and an aggressive entry combination. The conservative approach generates fewer trades. You can modify this pattern in many ways. The most obvious change is the exit strategy. For example, you could set an exit target at the most recent 20-day high.
The system was tested using System Writer Plus™ and actual S&P-500 contracts. The rollover date was the twentieth day of the month before expiration. The results are in two blocks in Table 4.20 because System Writer can process only 30 contracts at a time. You can treat either the conservative or the aggressive set of X and Y values as an unop-timized set. Both combinations were profitable on both blocks of data.
The equity curves for both options are shown in Figures 4.38 and 4.39. The equity curve for the conservative option is smoother than the aggressive option. Also, the aggressive option can produce larger drawdowns than the conservative values.
Data using the March, 1995 S&P-500 contract yield Figure 4.40, page 136, for X = 4 and Y = 3, and Figure 4.41 is for X = 1 and Y = 0. This system picked off the bottoms very accurately. Entry and reduced slippage are assured by entering and exiting on the close. Thus, a pattern-based, antitrend, bottom-fishing approach works nicely on the S&P-500 market.
A Pattern for Bottom-Fishing135
Table 4.20 Performance of bottom-fishing system with $2,000 initial stop and exit on the close of the twentieth day in the trade using actual S&P-500 data with rollover
|Test Period||Net Profit (S)||Percentage of Wins||Average Win/ Loss||Average Trade (S)||Intraday Drawdown ($)||Profit Factor|
Equity Curve for SP#1: VarA = 4, VarB = 3, MMS = $2,000, Exit = 20th close
|80000 5 60000 a- S|